Govt's infra booster gives hope to construction equipment makers

So far seeing a slump in demand since the second wave of the pandemic, construction equipment manufacturers are looking to make the most of the government’s infrastructure (infra) push. The enhanced capital expenditure (capex), they say, augurs well for the sector and will lead to increased demand for construction machinery.

 A lot will, however, depend upon capex execution in a time-bound manner. The government has announced a 36 per cent increase in the budgeted capex to Rs 7.5 trillion for 2022-23 (FY23).

 “The capex increase is very encouraging and shows the government's continued and consistent focus on infra development. But it has to be executed well,” says Sandeep Singh, managing director (MD), Tata Hitachi.  

If the contractors aren’t paid on time, it becomes a reason for slowdown, he says. Moreover, the Reserve Bank of India has very strict norms for non-banking financial companies (NBFCs). As a result, NBFCs have become cautious of lending to contractors. A delay in execution makes it tough for companies to plan capex, he adds.

Arvind K Garg, executive vice-president and head-construction and mining machinery business, Larsen & Toubro (L&T), says the government has laid out a clear blueprint of growth. Being the first to enter the construction equipment market, L&T is well positioned to benefit from it, he says.

 “With the right push and funding, it is possible to achieve the target of building 70 kilometres (km) per day,” he says.

It is equally important that once the contracts are awarded and execution begins, everyone in the value chain, especially the contractors, are paid on time, so that they can pay their suppliers on time.

According to Garg, the government will have to give a big push to the asset monetisation programme. “I would even suggest that the government look at tax-free sovereign bonds to fund it, given that there is enough liquidity in the country today."

Deepak Shetty, chief executive officer and MD, JCB India, says with the focus the government has on infra, the days ahead for the industry will be very constructive.

“The Rs 1-trillion being given to state governments will be invested as part of the Pradhan Mantri Gram Sadak Yojana. This will help scale up rural infra development," says Shetty.

The higher budgetary allocation for infra projects comes at a time when high input costs, transition to the Bharat Stage IV norms for wheeled equipment, and a slowdown in infra projects since the second wave of the pandemic have dented demand for construction machines, including excavators, backhoe loaders, wheel tractor-scrapers, pavers, compactors, forklift trucks, dozers, etc. The overall sector is estimated to have shrunk 10-15 per cent year-to-date.

India’s construction equipment industry saw a sales decline of 23 per cent for the third quarter of 2021-22 year-on-year. It sold 22,630 units, compared with 29,448 units sold in the third quarter of 2020-21, according to the Indian Construction Equipment Manufacturers Association.  

According to India Ratings & Research, this is likely to drive infra spending that accounts for one-fourth of the cement demand, in addition to the cascading impact it has on employment generation, aiding demand creation.

Within the infra space, road construction is likely to see significant boost, with the target to add 25,000 km of highways in FY23.

As part of the PM Gati Shakti Master Plan, the budgetary allocation to the National Highways Authority of India has more than doubled to Rs 1.34 trillion.